The SECURE Act Changed Everything About Inherited IRAs
Before the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, inheriting an IRA came with a generous benefit: the “stretch IRA.” Beneficiaries could stretch distributions over their entire life expectancy, allowing decades of tax-deferred growth and small, manageable annual distributions.
The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries. Effective for deaths occurring on or after January 1, 2020, most beneficiaries must now fully distribute the inherited IRA within 10 years. This change affects millions of Americans who inherit IRAs from parents, relatives, or other loved ones.
The 10-Year Rule Explained
The 10-year rule is deceptively simple: the inherited IRA must be completely distributed by December 31 of the 10th year following the year of the original owner's death.
- Owner dies in 2022 → account must be empty by December 31, 2032
- Owner dies in 2023 → account must be empty by December 31, 2033
- Owner dies in 2024 → account must be empty by December 31, 2034
Whether you must also withdraw something every year depends on when the owner died. Under the IRS final regulations (T.D. 10001, July 2024, applying from 2025), if the owner died on or after their required beginning date (1 April of the year after they reached their RMD age: 70½, 72 or 73, depending on when they were born), you must take a minimum withdrawal every year as well as emptying the account by the deadline. Missing one costs a 25% excise tax. If the owner died before that date, or the account is a Roth IRA, there is no yearly minimum: you can withdraw in any pattern you choose, as long as the account is empty by the deadline. IRS Notice 2024-35 only waived the penalty on 2024's missed minimums; it did not remove them.
The calculator asks for the owner's year of birth to tell which case applies, and every plan it shows meets each year's minimum when one is due.
Who Is Exempt: Eligible Designated Beneficiaries
The SECURE Act created a category called “eligible designated beneficiaries” (EDBs) who are exempt from the 10-year rule and may still use the traditional stretch IRA (life expectancy distributions, with a required minimum every year):
- Surviving spouses — the most common EDB. A spouse can roll the inherited IRA directly into their own IRA, delaying distributions until their own RMD age (73 under SECURE 2.0, or 75 if born in 1960 or later). Alternatively, a spouse can take as inherited IRA, which allows distributions before age 59½ without the 10% early withdrawal penalty.
- Minor children of the deceased — note: grandchildren do not qualify. The 10-year rule kicks in once the minor child reaches the age of majority (generally 21 per IRS rules). Adult children of the deceased are subject to the 10-year rule.
- Disabled individuals — as defined under IRC Section 72(m)(7).
- Chronically ill individuals — as defined under IRC Section 7702B(c)(2).
- Individuals not more than 10 years younger than the original owner — for example, a sibling close in age, or an older non-spouse partner.
All other beneficiaries — adult children, more-than-10-years-younger siblings, friends, estates, trusts (in most cases), charities — are subject to the 10-year rule.
The 25% Excise Tax: What Happens If You Miss the Deadline
Failing to fully distribute an inherited IRA by the deadline triggers a steep penalty. Under SECURE 2.0 (2022), the excise tax on missed distributions was reduced from 50% to 25% of the shortfall. If corrected within two years of the deadline, the penalty drops further to 10%.
This is in addition to the ordinary income tax you will owe on the distribution when you eventually take it. Missing the deadline is an expensive mistake — both in penalties and in lost planning opportunities.
Tax Optimization: The Bracket-Spreading Strategy
Because you can choose when to take distributions within the 10-year window, the primary tax planning goal is to avoid being pushed into higher marginal brackets.
Consider a non-spouse beneficiary who inherits a $500,000 traditional IRA and earns $80,000 per year in salary. If they cash out the entire IRA in year 1, that $500,000 distribution — added to their $80,000 salary — produces a total income of $580,000. The top portion would be taxed at 35%, and the extra federal tax on the IRA alone would be about $157,000 for a single filer (about $124,000 if married filing jointly). The top 37% rate is not reached: for 2026 it starts at $640,600 for single filers and $768,700 for joint filers (Rev. Proc. 2025-32).
Instead, spreading distributions over 10 years and taking amounts each year that fill (but don't exceed) the top of their current marginal bracket can reduce total federal taxes significantly — potentially by tens of thousands of dollars.
The optimal strategy depends on:
- Your current tax bracket and expected future income
- Whether you expect to retire (lower income) within the 10 years
- Other income sources: Social Security, pensions, rental income, business income
- State income taxes in your state
- Whether the account is a Traditional IRA (taxable) or Roth IRA (tax-free)
The Inherited Roth IRA: Same 10-Year Rule, Zero Tax
Inherited Roth IRAs are subject to the same 10-year rule for non-spouse beneficiaries — the account must be fully distributed by December 31 of the 10th year after the original owner's death.
The critical difference: qualified distributions from an inherited Roth IRA are completely tax-free. Provided the original Roth IRA was opened and funded at least 5 years before the first distribution (the 5-year aging rule), every dollar you withdraw is free of federal income tax.
This means the tax optimization calculus for inherited Roth IRAs is different: there is no tax benefit to timing distributions strategically. The tax-smart move is often to delay distributions as long as possible (let the balance compound tax-free for up to 10 years) and then take the full distribution in year 10 — maximizing the tax-free growth period.
The Spouse Special Rule: Roll Into Your Own IRA
A surviving spouse has a uniquely powerful option: they can roll the inherited IRA directly into their own IRA. This effectively removes the 10-year rule entirely — the rollover IRA is treated as the spouse's own account, subject to standard RMD rules (distributions required from age 73, or 75 for those born in 1960 or later, under SECURE 2.0).
Alternatively, a spouse can take as an “inherited IRA” rather than rolling it over. This can be advantageous if the spouse needs distributions before age 59½ — inherited IRA distributions are not subject to the 10% early withdrawal penalty, whereas distributions from a rollover IRA before age 59½ generally are.
The decision between rollover and inherited treatment requires careful analysis of the spouse's age, income needs, and existing retirement accounts. Consult a financial advisor before making this irreversible decision.
Common Mistakes to Avoid
- Cashing out the full balance in year 1. This is the most expensive mistake. A $400,000 IRA distribution in a single year can push you into the 35–37% bracket, wiping out a huge portion in taxes. Spread it out.
- Ignoring the deadline entirely. Some beneficiaries assume the 10-year rule means nothing happens for 9 years. The penalty for missing the deadline is severe — track it.
- Confusing the rules for pre-2020 and post-2020 deaths. If you inherited an IRA from someone who died before January 1, 2020, the old stretch IRA rules still apply to that account.
- Assuming grandchildren qualify as minor child EDBs. Only minor children of the deceased account owner qualify — not grandchildren.
- Not considering state taxes. Many states tax IRA distributions as ordinary income. Your total effective tax rate is federal + state.
Trust Beneficiaries and the 10-Year Rule
When an IRA is left to a trust, the tax treatment depends on the trust type. A "see-through" or "conduit" trust passes distributions through to the trust beneficiaries, who are taxed at their individual rates. An "accumulation" trust retains distributions inside the trust, where income is taxed at compressed trust tax brackets — reaching the top 37% rate at just $16,000 of income (2026). For most families, a conduit trust or direct beneficiary designation is more tax-efficient. Trust-related inherited IRA planning requires both a tax attorney and a CPA to navigate correctly.
When to Hire a Professional
For most inherited IRA situations — especially traditional IRAs with balances above $100,000 — the tax savings from professional planning far exceed the cost of a fee-only advisor or CPA. A multi-year distribution plan can coordinate:
- Inherited IRA distributions with your other income sources
- Roth conversion opportunities in lower-income years
- Social Security timing (to avoid bracket creep from SS + IRA distributions)
- Medicare IRMAA surcharge thresholds
- State tax planning if you are considering relocating
A fee-only CFP® professional charges for their time, not a commission on products they sell — which means their advice is aligned with your interests, not theirs.
Frequently Asked Questions
What is the 10-year rule for inherited IRAs?
The 10-year rule requires non-spouse beneficiaries to fully distribute an inherited IRA within 10 years of the original owner's death (by December 31 of the 10th year). Established by the SECURE Act of 2019, it applies to deaths on or after January 1, 2020. If the owner died on or after their required beginning date, a minimum withdrawal is also due every year from 2025; if they died before it, or the account is a Roth IRA, only the deadline matters.
Who is exempt from the 10-year rule?
Eligible designated beneficiaries: surviving spouses, minor children of the deceased (not grandchildren), disabled and chronically ill individuals, and people not more than 10 years younger than the original owner. All others must follow the 10-year rule.
What happens if I miss the deadline?
A 25% excise tax on the shortfall (reduced from 50% by SECURE 2.0), plus ordinary income tax on the eventual distribution. The penalty drops to 10% if corrected within two years. Consult a CPA immediately if you may have missed a deadline.
Should I take distributions evenly or front-load?
It depends on your current vs. expected future income. The bracket-optimization strategy — withdrawing to fill your current marginal bracket without exceeding it — typically minimizes total lifetime tax. Use this calculator to model all four strategies.
Do I pay taxes on an inherited Roth IRA?
No, qualified distributions from an inherited Roth IRA are tax-free. The 10-year rule still applies, but the tax-optimal strategy is often to delay distributions as long as possible to maximize tax-free compounding, then take the full balance in year 10.